Recognizing “early signs of progress” from the first three Financial Alignment Initiative (FAI) demonstrations to serve dual-eligible beneficiaries, CMS on Jan. 19 offered the states of Massachusetts, Minnesota and Washington an opportunity to extend the scheduled end dates of their demos for two additional years. This is the second extension CMS has offered to states participating in the duals demos, and will give CMS and the three states the additional time needed to evaluate whether the programs meet certain quality and cost savings goals and should be made permanent.

“The demonstrations in those states have produced enough preliminary findings of quality outcomes and cost savings to support HHS and CMS in deciding to continue their operations, and this is CMS’s way of recognizing that the states really want to keep the demonstrations operating as well. The legislatures in those states support them and there’s enough consensus among everybody involved that they should keep operating,” observes Kevin Malone, an associate in the Health Care and Life Sciences practice in the Washington, D.C., office of Epstein Becker & Green, P.C., and a former duals officer at CMS.

In the recent three-page memo from the CMS Medicare-Medicaid Coordination Office (MMCO), Director Tim Engelhardt pointed to several “early signs of progress” demonstrated in reports from RTI International, which was hired by CMS to evaluate the quality of care and the changes in spending under the Medicare and Medicaid programs carried out through the models. These preliminary findings include:

  • Early trends suggesting declines in inpatient utilization. Admissions among Massachusetts enrollees dropped from 192.2 admissions per 1,000 user months in the first baseline period to 164.2 in the first demonstration period, with a similar decline in Washington from 186.0 to 160.6 admissions per 1,000 user months, according to the memo.

  • High member satisfaction. Focus groups in the Massachusetts and Washington demos indicated improvements in certain elements of beneficiary experience, and most respondents in a Massachusetts survey gave their Medicare-Medicaid plan (MMP) a 9 out of 10 overall rating for 2014.

  • Net Medicare savings. After the retrospective payment to Washington state, which is one of two states that operate a managed fee-for-service demo under the FAI umbrella, net Medicare savings for that demo for the 2013-14 performance period will be around 3%.

“We are still striving to fully realize the vision for person-centered systems to serve Medicare-Medicaid beneficiaries, but we have never been closer than we are today,” remarked Engelhardt.

The first FAI demos began in 2013 and were initially scheduled to operate for three years. The managed fee-for-service model operated by Washington state was the first to begin serving dual-eligible beneficiaries in July 2013; Massachusetts, which participates in the capitated model, followed in October of that year. Minnesota, which operates a third and unique type of demonstration building on its pre-existing Minnesota Senior Health Options program, began in September 2013. There are now 10 states participating in the capitated models under the FAI umbrella, and they account for 11 demos, since New York operates two, according to CMS (see chart below).

CMS in July 2015 offered states the opportunity to extend their demos for another two years, acknowledging that states would be developing budgets for fiscal years extending beyond the scheduled end dates and that the initial major evaluation reports based on only the first full demonstration year may demonstrate that more experience is needed “before assessing overall success or failure” (MAN 7/30/15, p. 1). A CMS spokesperson tells AIS Health that seven out of the 11 capitated demonstrations have already executed memoranda of understanding or contracts that include the two-year extension and most others have expressed their intent but are still finalizing contract amendments with the agency. California, which operates the largest demo, stated its intent to carry out the demo for another two years but plans to alter certain aspects of the program that were not found to be cost-efficient (MAN 1/26/17, p. 7). Only Virginia is clearly not planning for the extension, and will replace its demo with a different program in 2018, adds the spokesperson.

Extension Offer Supports State Budgeting

Massachusetts, Minnesota and Washington all extended their demos through Dec. 31, 2018, which allowed additional time for evaluation and other reports to become available during the demo period, including the second annual evaluation reports for each of the demos that will be released this year, according to the letter from Engelhardt. But the memo said certain factors such as “delays in the Transformed Medicaid Statistical Information System (T-MSIS) and, for Massachusetts, MMP encounter data availability” led CMS to once again reconsider the evaluation schedule. And because CMS intends to make determinations about the continuation of the demos approximately 21 months before their scheduled end dates in order to allow for sufficient state budget planning, accurate Medicare Advantage bids in demo markets and time for the “federal clearance process,” CMS does not expect to have “sufficient information by that point for a determination to be made regarding whether the models have met the criteria for expansion” under the demo’s Medicare waiver authority. As a result, it intends to work with each of the three states to extend their demos’ end dates to Dec. 31, 2020, a change it suggested will “minimize the risk of beneficiary disruption and support clearer decision-making in state budgeting” while CMS continues its independent analyses.

“We can take away from the extension that evaluating a program of this size and complexity has been more difficult than anybody imagined,” observes Malone. “The letter also leaves the door open to do a similar extension in the other states and that seems entirely possible. In many ways, the FAI demonstrations are a manifestation of CMS investing a lot of time and effort to make Medicare Advantage work effectively with state Medicaid programs and they represent the highest level of federal Medicare cooperation with state-specific policy. State flexibility will be a likely focus of the new administration, so there’s every reason to think that CMS will support further extensions in some of the other states, if not all of them.”

The fate of the duals demonstrations lies in their ability to do at least one of three things as required under the 1115A(c) waiver provisions of the Social Security Act: (1) improve the quality of care without increasing spending; (2) reduce spending without reducing the quality of care; or (3) improve the quality of care and reduce spending. The HHS secretary has the authority to make them permanent under the Affordable Care Act, but that law is now under threat of repeal (MAN 1/26/17, p. 5). Another 1115A(c) demo —the Medicare Part B drug demo — was canceled after “tremendous blowback,” and the secretary’s authority to permanently authorize those demos may be returned to Congress as part of ACA repeal, suggests Bob Atlas, president of the EBG Advisors unit at Epstein Becker & Green. There is also some question of how MMCO would be funded given that the CMS Innovation Center, which supports all demos at CMS including the MMCO staff implementing the FAI demonstrations, is also under threat of elimination or at least major upheaval by House Speaker Paul Ryan (R) and congressional Republicans.

In the meantime, the extension provides some planning stability to states and plans. “An extension of the Medicare-Medicaid model of integrated care demonstration would be great news for our more than 12,500 One Care members and countless other Massachusetts residents under age 65 with complex medical, behavioral health and social needs,” remarks Chris Palmieri, president and CEO of Commonwealth Care Alliance, whose One Care plan is the highest-rated MMP in the 2016 CAHPS survey. “We believe that the next few years will prove that this program is not only sustainable here in Massachusetts, but promises to help transform healthcare for one of the nation’s most vulnerable and under-served populations.”

Enrollment in Capitated Duals Demonstrations, January 2017

Enrollment in Capitated Duals Demonstrations, January 2017

SOURCE: DUAL Medicare-Medicaid Dual Eligibles Database, an online subscription database and newsfeed from AIS Health. Visit